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Efficiency in the Optimum Supply of Public Goods
Lawrence J. Lau
Eytan Sheshinski
Joseph E. Stiglitz
Abstract
In this paper we are concerned with the following question: in any economy with several public goods, what are the conditions under which the conventional optimality rule of equality between the sum of marginal rates of substitution and the marginal rate of transformation still holds even in the presence of distortionary taxation? Two cases are considered. In the first case, the taxes may be arbitrary. In the second case, the taxes are optimally chosen.
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